Obama Budget Said to Include Earlier Debt Reduction Offer

April 4 (Bloomberg) -- The White House is telling lawmakers
that President Barack Obama’s budget plan will mirror previous
deficit-cutting proposals, which included changing the
calculation for Social Security cost-of-living increases and tax
brackets.

The budget plan, set for release April 10, will track the
offer on spending cuts and revenue increases that Obama made to
House Speaker John Boehner of Ohio as part of an end-of-the-year
deal on expiring tax cuts, according to a person familiar with
the discussions who asked for anonymity because the budget
details haven’t been made public.

That plan included a new inflation gauge that would
effectively reduce cost-of-living payments for Social Security
beneficiaries, a measure that is sure to draw opposition from
many Democrats. It also proposed using the calculation for
adjusting income tax brackets, which would mean higher payments
for many taxpayers.

The administration wouldn’t immediately confirm details
about the president’s spending plan or whether he would seek to
make the so-called chained Consumer Price Index the benchmark
for Social Security increases or adjusting tax brackets.

President’s Priorities

While Obama’s fifth budget proposal stands little chance of
becoming law because of opposition from Republicans who control
the House, it emphasizes the president’s priorities and will set
the stage for talks with Republicans on a broader debt-reduction
package.

For the first time, Obama is poised to incorporate specific
entitlement benefit cuts in his official budget, an attempt to
signal to Republicans that he still wants to cut a deal on
reducing the deficit.

Republicans have said the president needs to take the lead
if there’s any chance to address the biggest long-term driver of
the debt, Medicare spending, because Democratic lawmakers have
resisted trimming entitlement-program costs.

White House press secretary Jay Carney said at an April 1
briefing that Obama remains open to using chained CPI for Social
Security as a way to cut the program’s cost. “That offer
remains on the table, as we’ve made clear repeatedly since
then,” Carney said.

Two Goals

Changing the inflation calculator potentially provides
Obama and congressional Republicans with a way to accomplish
their goals. Obama is seeking more revenue through tax-code
changes, while Republicans are pushing to trim entitlement
programs such as Social Security in cutting spending.

The change in calculation would make the annual adjustments
smaller than they are now. As a result, more income would be
subject to higher income tax rates. The administration in its
earlier proposal estimated that would bring in additional tax
revenue of about $100 billion over 10 years.

In 2020, the change would raise taxes for 78.3 percent of
households by an average of $124, according to the nonpartisan
Tax Policy Center in Washington. Taxes would increase for 98
percent of households making between $75,000 and $100,000 a
year.

Boehner’s spokesman said House Republicans will resist
attempts to raise tax revenue to cut the deficit, which was $1.1
trillion in fiscal 2012.

Republican Response

“The president got his tax hikes already,” the spokesman,
Michael Steel, said in an e-mail. “It’s time to deal with
Washington’s spending problem, so we can get our economy moving
again and create more American jobs.”

Switching to the alternative inflation yardstick for Social
Security would save $130 billion, according to the plan Obama
offered last year.

Obama hasn’t included the changes to Social Security and
tax bracket calculations in previous spending blueprints and
might still leave them out, according to a person familiar with
White House discussions, who asked for anonymity to talk about
the internal debate.

The propect of such a change already is generating
opposition.

“Millions of working people, seniors, disabled veterans,
those who have lost a loved one in combat, and women will be
extremely disappointed if President Obama caves into the long
standing Republican effort to cut Social Security,” Vermont
Senator Bernie Sanders, an independent who caucuses with
Democrats, said in a statement today.

Market Reaction

While lawmakers wrangle over the budget, investors have
focused on an improving economy. The benchmark Standard & Poor’s
500 Index has risen about 9 percent so far this year. The S&P
added 0.3 percent at 3:12 p.m. in New York, rebounding from
yesterday’s 1.1 percent retreat from a record.

The Bloomberg Consumer Comfort Index increased to minus
34.1 in the week ended March 31 from a six-week low of minus
34.4 in the prior period. The comfort readings from January
through March were the strongest on average of any first quarter
since 2008 as a pickup in hiring and record stock prices helped
consumers overcome an increase in the payroll tax.

Even though the president’s budget is more than two months
late, because of tax-and-spending-legislation at year’s end
known as the “fiscal cliff,” Pat Griffin, former President
Bill Clinton’s lobbyist in Congress, said the timing “may be
just right.”

“If there’s one more chance this year to ignite this
conversation, this would be it,” Griffin said.

Dueling Budgets

That’s because House Republicans and Senate Democrats have
passed non-binding budget resolutions that are far apart, and
there’s little likelihood they will be reconciled. Obama plans
to dine with Senate Republicans the evening of April 10, just
hours after his budget plan is released.

The chained CPI was a centerpiece of failed negotiations
between Obama and Boehner over a “grand bargain” budget deal
in the summer of 2011, and it was also the key tradeoff Obama
was willing to make as part of the so-called fiscal cliff
negotiations in December in the context of a broad debt-reduction package.

Unlike the consumer price index, chained CPI adjusts for
consumers’ tendency to switch products when prices rise. In that
way, economists say it is a more accurate measure of the cost of
living for purposes of setting tax policy and Social Security
benefits. The regular CPI tends to overstate inflation because
it doesn’t adjust for consumer behavior, economists say.

A concern for Democrats is whether a change can be made in
a way that would protect low-income and other vulnerable groups
of senior citizens. Obama’s 2010 debt commission recommended
instituting a flat-dollar benefit “bump-up” for Social
Security recipients who have been receiving benefits for 20
years, and a minimum benefit for lower-income beneficiaries.

Another major concern for Democrats and Republicans will be
protecting disabled veterans. That could be addressed by
enhancing Social Security disability benefits or increasing
certain credits for low-income taxpayers.